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a project has an initial outflow of $12500 followed by six equal annual cash inflows, commencing in one years time . the payback period is exactly four years . the cost of capital is 12% per annum.
what is the projects net present value to the nearest $ ?I dont know how to do this question . Help me !
If the payback period is exactly four years then it means that the annual cash inflow is 12500 / 4.
Now you know the annual cash inflow, you can discount it for 6 years using the 6 year annuity factor at 12% and subtract the initial outflow to get the NPV.
can i do like this ?
annual cash flow is 12000/4 = 3000 per year .
so now we are using annuities table as we are getting equal payment each year .
so, 3000 * 4.111 ( from the table ) = 12333
so now the net present value is 12333 – 12000 = 333
am i correct sir ??? 🙂That is correct (and is what I wrote you should do!).
Assuming that the initial flow is indeed 12,000 (in your first post you said it was 12,500).
sir. one doubt that if payback period is 4 yrs then why in the question they have given that we get 6 equal cash inflows ?
what is the logic or sense here ?
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